Can I Contribute to My Spouse's IRA in Retirement?

Can I Contribute to My Spouse’s IRA in Retirement?

An IRA, or individual retirement account, is a means to save for retirement if your employer doesn’t provide a 401k plan, if you want to diversify your retirement savings with another account, or if you want an account that will stay the same even if you move jobs.

If you earn money through a job or your own business, you can contribute to an IRA, and in some cases, you can even fund an IRA if you’re not working at all. Opening a spousal IRA is one of these scenarios. Spousal IRAs allow a working spouse to make contributions on behalf of a non-working spouse to an IRA.

Check out the rest of this tutorial if you’ve never heard of spousal IRAs or if you have and aren’t sure how they function. We’ll go over the following topics:

• What is a spousal IRA?

• How to open a spousal IRA

• Benefits of a spousal IRA

• Important factors to keep in mind

• spousal IRA: key Takeaways

• Getting the best value with Equity Taxation

Let’s start with a simple spousal IRA definition.

What is a spousal IRA, exactly?

Spousal IRAs, as previously indicated, allow a working spouse to contribute to a non-working spouse’s retirement through an IRA. Many couples, for example, decide that one spouse will stay at home with the kids while the other works. In that instance, the stay-at-home spouse is unlikely to have a 401k plan and may not be able to contribute to their own IRA.

As a result, under existing law, the non-earning spouse can contribute to an IRA if certain circumstances are met. The IRS notes that your spouse IRA contributions cannot exceed the lesser of your combined taxable income or the annual IRA contribution limitations, which are $6,000 for 2021 and $7,000 for savers age 50 and over.

saving money from IRA

That implies you can’t make more than $12,000 in total IRA contributions. If you’re over 50, the amount goes up to $13,000, and if you and your spouse are both over 50, the amount goes up to $14,000. It’s easy to recall that the working spouse’s contributions to the non-working spouse’s IRA simply substitute the non-working spouse’s contributions if they worked.

You can open two different forms of spousal IRA:

Traditional IRA: You can put money into a traditional IRA and then deduct your contributions from your taxes for the year. When you retire and start taking cash from the account, however, the monies are taxed as ordinary income.

Roth IRA: This sort of IRA allows you to put money into it after you’ve paid taxes, and contributions aren’t deductible. Your withdrawals after retirement, on the other hand, will not be taxed as income.

How do I set up a spousal IRA?

Spousal IRAs are a terrific method for married couples to save for retirement and plan for their future jointly. You may be asking how to start a spousal IRA if you have a spouse who does not work or if you are a spouse who does not work.

The good news is that it’s just like opening a regular IRA account—a it’s regular IRA account, after all. A spousal IRA can be opened at your preferred brokerage or robo-advisor. Create an account, fill out the required information, select a funding account (such as your checking or savings account), and decide how often and how much you wish to give.

Note: In order to make a spousal IRA, the IRS requires that you and your spouse file joint returns. 

You’ve never invested before and don’t know where to begin? Don’t worry about it. Mint has a useful tool to assist you in finding the best brokerage for your needs. Check out the Equity Taxation article hub on investments and taxes if you’re curious about how investing can effect your tax status.

The advantages of a spousal IRA

Spousal IRAs are a terrific way for couples to save for their future together while still taking advantage of the IRA’s investment options, such as mutual funds, ETFs, and other equities and bonds. IRAs allow you to build your assets slowly and steadily while taking advantage of compound interest.

The yearly contribution limits that apply to IRAs may make it difficult for married couples who rely on only one wage earner to save enough for retirement. Couples can practically double the amount they are allowed to save by having two separate accounts, making it easier to fully plan for both individual’s expenses and demands after they retire

Keep the following points in mind:

There are a few tax restrictions and standards that you should be aware of if you want to open a spousal IRA. What you need to know is outlined here.

1. Your total contributions must be at least equal to your earned income. If you and your spouse both contribute to IRAs, your income must be equal to or greater than the amount of your contributions.

2. If you and/or your spouse are under the age of 50, you and/or your spouse can each contribute up to $6,000 in 2021 if your income is at least that amount. You can contribute up to $7,000 for each spouse if you are 50 or older.

3. You have until the end of the year to contribute to your traditional IRA for the year 2021. Also, you may be able to deduct your contribution from your 2021 taxes, but be sure to inform your plan administrator that it is for 2021.

4. You may not be able to deduct all of your IRA contributions. These restrictions do not apply to you if neither you nor your spouse are covered by an employer-sponsored retirement plan. If the working spouse is enrolled in a company-sponsored retirement plan, your total income must be less than $105,000 in 2021 to qualify for a full deduction for your contributions. You can get a partial deduction if your combined income is less than $125,000, but your IRA contributions are not deductible if your combined income is greater than $125,000.

5. To contribute to a non-deductible Roth IRA in 2021, your total income must be less than $208,000. There is no such salary restriction for regular IRAs.

6. If you make nondeductible contributions to your IRA, you can reclaim those deductions tax-free when you retire because you didn’t obtain a deduction for them when you made them.

Key Takeaways for Spousal IRAs

Here’s what to remember before you go:

• Spousal IRAs are standard or Roth IRAs that married couples can utilise to jointly prepare their retirement.

• The contribution limitations and a few more tax regulations that apply to personal IRAs also apply to spousal IRAs; the limit for both IRAs is roughly two times the limit for a single IRA.

• A spousal IRA can be opened with a regular broker or a robo-advisor.• Spousal IRAs make it easy to prepare ahead so that both spouses have enough money when they retire